E21-16. Please answer part a,d,e and show all workings clearly. E21.16 (LO 2, 4) (Lessee Accounting, Initial Direct Costs) Rauch AG leasesa piece of equipment to Donahue SA on January 1, 2022. The lease agreementcalled for annual rental payments of €4,892 at the beginning of each year of the 4-year lease. The equipment has an economic useful life of 6 years, a fair value of€25,000, and a book value of €20,000. Both parties expect a residual value of€8,250 at the end of the lease term, though this amount is not guaranteed. Rauchset the lease payments with the intent of earning a 5% return, and Donahue isaware of this rate. There is no bargain purchase option, ownership of the leasedoes not transfer at the end of the lease term, and the asset is not of a specializednature.Instructionsa. Prepare the lease amortization schedule(s) for Donahue for all 4 years of thelease.b. Prepare the journal entries for Donahue for 2022 and 2023.c. Suppose Donahue incurs initial direct costs of €750 related to the lease.Prepare the journal entries for 2022.d. Explain how a fully guaranteed residual value by Donahue would change theaccounting for the company. The expected residual value is €8,250.e. Explain how a bargain renewal option for one extra year at the end of thelease term would change the accounting of the lease for Donahue.

Amortization - Amortization is an accounting method used over a certain period of time to gradually…

(LO 2, 4) (Lessee Accounting, Initial Direct Costs) Rauch AC of equipment to Donahue SA on January 1, 2022. The lease agreeme or annual rental payments of €4,892 at the beginning of each year o ase. The equipment has an economic useful life of 6 years, a fair valu o, and a book value of €20,000. Both parties expect a residual value at the end of the lease term, though this amount is not guaranteed. lease payments with the intent of earning a 5% return, and Donahu of this rate. There is no bargain purchase option, ownership of the le t transfer at the end of the lease term and the asset is not of a speci

(LO 2, 4) (Lessee Accounting, Initial Direct Costs) Rauch AC of equipment to Donahue SA on January 1, 2022. The lease agreeme or annual rental payments of €4,892 at the beginning of each year o ase. The equipment has an economic useful life of 6 years, a fair valu o, and a book value of €20,000. Both parties expect a residual value at the end of the lease term, though this amount is not guaranteed. lease payments with the intent of earning a 5% return, and Donahu of this rate. There is no bargain purchase option, ownership of the le t transfer at the end of the lease term and the asset is not of a speci

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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